I don't know much about the jock tax but this article came up in a search about LeBron's options prior to the decision in 2010.
In the NBA, each player's per-game salary is computed, and whenever a team is on the road, the players must pay whichever tax rate is higher, the home state's or the away state's.How does this work out for LeBron if he chooses to play in either Miami or Cleveland? First let's consider all of his 41 home games in either city. Because Florida has no income tax, LeBron's home game income tax liability is zero. On the other hand, were LeBron to play in Cleveland, he would pay Ohio's progressive tax with a top rate of 5.925% plus Cleveland's flat income rate of 2% on all 41 home games. On LeBron's Cleveland salary of about $244,000 a game, LeBron would be paying $9,900 in tax on each game he plays for the Cavaliers, compared to zero playing for Miami. In other words, James would be losing almost all of his salary advantage for playing with Cleveland, and that is only for half of his games.
So now let's consider jock taxes paid on the road. There are 6 places that effectively have no jock tax: Florida, Texas, Washington D.C., Illinois, Toronto and Tennessee (Illinois has a jock tax but it is retaliatory and therefore doesn't apply to athletes from Florida, while Tennessee has a jock 'fee' and it cannot be credited on state income tax forms). Because of Ohio's income tax laws, LeBron would be forced to pay Ohio and Cleveland's income taxes for each game played in those no-jock-tax locations if he were to play for Cleveland. But Florida would charge him no income tax while he was there. So that's another Miami advantage for 10-to12 games per year, during which LeBron, as a Cav, would be forced to pay roughly $211,000 ($2,600 per game) in income taxes that he wouldn't have to pay if he joins Miami.
Therefore, even though LeBron's salary would be $10,000 more per game if he stayed in Cleveland, he would be paying $12,500 more in taxes. The rest of the road games are pretty much a wash between the two cities. When playing in California, New York and other destinations, players from Ohio and Florida pay the same, the tax rate of the state they're visiting.
Of course these numbers are only estimates and do not account for the possibility of playoff games, possible increases in state tax rates or changes in the NBA salary cap. It should also be noted that if you include LeBron's 6th year as a Cavalier, the tax benefits of playing for Miami would only cut Cleveland's salary advantage by about two-thirds.
So Miami has a clear tax advantage, but what about some other possible destinations for LeBron, like Chicago, New York, New Jersey and Los Angeles? Although Illinois has a low, flat income tax rate of 3%, Chicago athletes are at a distinct disadvantage because Illinois is the only state that does not permit their resident athletes to credit jock taxes they've paid against their own state income tax liability. That means that these athletes pay 3% of their income to Illinois, plus any jock taxes levied against them. If LeBron were to go to Chicago, he would pay the same amount that he would pay in Miami, plus 3% of his earnings. At $234,000 a game, for 5 years, LeBron would be paying over $7,000 more per game in taxes for Chicago then he would for Miami. As far as New Jersey, Los Angeles and New York go, each state has a much higher state income tax than Cleveland, with the top rates being 8.97% in New Jersey, 10.55% in California, and 12.62% in New York City. Although, this may not matter much for the Knicks, who say that the city of New York would make LeBron a billionaire.
I have a bad feeling that amidst all of the free agent 'summits' LeBron has been attending and Family Guy episodes he has been starring in, he hasn't had time to calculate his income tax liability in each state and figure out which team can offer him the most money. Someone should really hurry up and inform him before he announces his decision tonight, in case he wants to change his mind.
For more on jock taxes, see http://www.taxfoundation.org/jock-taxes#article.
7/6/2015 11:06 PM
)? Some would go for the money, some would go where they felt they were the best fit, some would go where there friends are, some would go for their hometown, some would go where they get more playing time, some would go where they have the best chance of winning.